CFA Practice Question

There are 96 practice questions for this study session.

CFA Practice Question

An analyst has gathered the following data to analyze a stock.

  • Current stock price: $20.
  • Expected price at the end of the next period: $22.
  • Current period earnings: $2.
  • Expected next period's earnings: $2.2.
  • Stable earnings growth rate to infinity: 6%.
  • Stable payout ratio: 50%.
  • Beta: 1.2.
  • Required rate of return: 12%.

Suppose now is the end of the current period. What is the expected rate of return for the next period?
Correct Answer: Expected rate of return = (End of period value + dividend) / (start of period value) - 1 = (22 + 2.2 x 50%) / 20 - 1 = 15.5%.

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